The stock market may have been selling off earlier this week, but investors in the FAANG stocks – Facebook, Inc. (FB), Apple Inc. (AAPL), Amazon.com, Inc. (AMZN), Netflix, Inc. (NFLX) and Alphabet Inc. (GOOG) – wouldn't have known it. These stocks have been able to stand up to the volatility, leading some to liken them to General Electric Company (GE) and International Business Machines Corporation (IBM) of 15 years ago.
"As the broader market sank late Wednesday, one area that saw continued strength: the so-called 'FAANG' stocks," wrote J.J. Kinahan, TD Ameritrade's chief market strategist, in a blog post. "Many investors now seem to have more trust in the FAANG stocks than in traditional blue-chip names, and we tend to see it play out as the market goes down."
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Take February's stock correction for starters. While the S&P 500 Index briefly declined 11%, FAANG stocks declined as well but shed only around 8% of their value before quickly regaining the losses, said Kinahan. Most of the indexes and many stocks have regained their losses and then some since the bloodletting of last month. Investors got spooked that the Federal Reserve could raise interest rates more than expected, but a lack of much wage growth in the February jobs report and only a small increase in the Consumer Price Index for February is alleviating concerns about rising inflation.
In a volatile trading environment, which is something that the markets had not seen for two years until recently, FAANG stocks are now viewed as a stable way to play the markets. "When things go down, people tend to put their trust in these FAANG names to come back," wrote Kinahan.
While TD Ameritrade Holding Corporation (AMTD) isn't advocating investing in FAANG stocks, nor does it mean that the group is immune to a sell-off, Kinahan highlighted an interesting trend that has been playing out more recently. The strategist noted that a lot of money is moving out of consumer staples stocks and into technology. "With this sort of rotation going on, investors should consider being careful about the staples space," he wrote.
For some time now, investors have been bullish on the prospects for the FAANG stocks. But with valuations at high levels, some are warning that a pullback could be in the cards. That's what long-time tech analyst Paul Meeks said on CNBC this week. He predicted that the FAANG stocks could see a pullback of as much as 20% and that it could happen at any time. Why such a big decline? FAANG stocks are still "volatile high beta stocks," so when they correct, it's not by a little but by a lot. Find out if you can earn money in stocks.